SIA, chip executives see IC rebound momentum

SAN FRANCISCO -- Optimism mounted this week that the semiconductor industry has turned the corner thanks to encouraging numbers from the Semiconductor Industry Association and interviews with executives.

Worldwide chip sales in August--normally a slow month-- rose 4 percent sequentially and 10.6 percent annually to $13.42 billion, according to the SIA. It was the strongest August since 1990.

As a result of the August sales chip sales covering the eight-month period January to August were $99.77 billion, 12.4 percent ahead of the sales of $88.77 billion racked up during the same period in 2002. DRAM rose 11 percent in the month, processors were up 7.8 percent and chipsets were up 4.9 percent, Andrey said.

Back-to-school purchases and IT spending, driving by long-overdue capital-refurbishments, are driving the uptick, according to Doug Andrey, chief analyst for the group.

"We've also had for the first time since 1999 a back-to-school selling season that actually exceeded expectations," he said during an interview with EE Times here.

What's driving the increase in IC sales are macroeconomic forces, particularly driven by IT spending. The U.S. GDP in the second quarter rose at a 3.3 percent annualized rate, up from 3.1 percent. IT spending on equipment rose to 8.3 percent to 8.2 percent on an annualized basis, which "is the first positive number we've had in a while," he said.

The U.S. economy could grow 4-5 percent in the second half of this year, with spending on equipment and software making up a large part of that, Andrey added.

"We may just be seeing the beginnings of the IT upgrade cycle that's been long forecast," Andrey said.

The SIA is now looking at a 9.6 percent increase in semiconductor sales in the third quarter. "If we do better than that, we could have our first double-digit increase since 2000," he said.

Helping things out is an extremely tight supply chain, where inventory has been reduced "to almost negligible levels" from $15 billion at the end of 2000, according to Andrey. "Most companies are living hand to mouth as far as ordering product. Inventories are at historic lows. Right now it's at unsustainably low levels."

Capacity utilization has risen to 85 percent after being at a low of 63 percent in 2001. The industry also has seen its capital expenditures ratio dip to 20 percent of sales, off 2-3 percentage points from traditional levels, Andrey said.

Andrey's comments are in line with some significant anecdotal evidence. ST Microelectronics, which is building a 300mm fab in Catania, Sicily, said last week its utilization rate is 85 percent, which it calculates as full capacity.

T.J. Rodgers, chairman and chief executive of Cypress Semiconductor, said his company started hitting solid utilization in the past couple of weeks.

"I think we will be screaming about capacity in the second quarter of next year," he said, in an interview with EE Times.